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The world's biggest automaker is going through a global shaming and bleeding over millions of dollars lost each day in sales after a recall covering more than 8 million cars and trucks globally.
Toyota Motor Inc., Japan's biggest industry, took a beating in the United States after its vehicles were recalled over safety issues. Washington is now pushing for a probe while the US media seem to have started a witch hunt over the recalls singling out Toyota which happened to be a foreign, non-US company. Investors fear it has not hit the bottom of the crisis yet.
Safety problems and sales slump
Toyota recalled eight models on January 21 this year due to problems with gas pedals. This recall alone accounts to a total of 2.3 million vehicles in the US which include Camry, US’ top selling car for the last eight years, and other popular models like Corolla, Matrix, Avalon, Tundra, Sequoia, Highlander, and RAV4.
Based on Toyota's official website, the models involved in recalls have now expanded to include Prius – the hybrid car, Tacoma, and VENZA. It is indeed, facing a tough job rebuilding its image as a world class automaker.
Consequently, Toyota’s total sales dropped 21 percent after the recalls. January sales dropped by 47 percent from December last year. As soon as the recalls started, it stopped the sales of involved brands as well as production of new ones while sales of brands not included in the recall also tumbled down by 13 percent. This led to General Motors (GM) taking over Toyota's leading position while Ford is on to overtaking GM.
The slump in Toyota's sales neither lifted sales for other automakers. The recorded sales increase for other carmakers came not from individual sales but fleet sales courtesy of the US government and businesses particularly rental car companies. Fleet sales refer to sales made by business buyers or people buying cars for companies. GM even posted a downtrend of 30 percent in sales in January from December.
A tale of two loss makers
Toyota became the biggest automaker in the world in 2008. It was during the first quarter of 2007 when Toyota snatched from GM its position of being the world's leading carmaker for more than 70 years.
For the first time, Toyota surpassed GM's number of vehicles sold for the quarter. In 2006, its global output rose by 10 percent thereby producing 9.018 million vehicles while GM then produced 9.18 million worldwide. In 2008, Toyota reported 8.97 million sales while GM sold 8.36 million units about 616,000 lower than Toyota's.
For its part, GM suffered losses in the European and North American markets. It went down to 21.1 percent in North America and 6.5 percent in Europe. In a bid to look for emerging markets given the slump in the two regions, it maximized and actually saw an increase in Latin America, Africa, and the Middle East.
But it was insignificant when compared to its heavy losses. It posted an increase in sales of only 3.2 percent and 2.7 percent in the Asia-Pacific region as compared to losses posted in North America reaching over 21 percent.
However, it was not a rosy picture for Toyota. In fact, it became number one because GM lost so much over the years. Though getting profits bigger than GM, Toyota’s sales posted 4 percent down globally while GM's fell 10.8 percent worldwide in 2008, according to Jonathan Browning, GM's vice president for sales, service and marketing.
The global auto industry has been gripped by the global economic crisis which hit US primarily, explaining GM's great fall. About 3.5 million fewer vehicles were sold in 2008 than the previous year.
Focusing on US alone, records point to the fact that both companies posted their biggest losses in the US where the recession has resulted to lower demand. In 2008, GM's sales in the US went down 22.7 percent in 2008 while Toyota fell 15.4 percent.
Nations in recession
The problem of the auto industry is part and parcel of the global economic and financial crisis that hit US, Japan and other major capitalist countries. The economic crunch is pressing down on the auto industry and the recent recalls are but a manifestation of the crisis. Toyota and GM's demise is a projection of the global economic slump gripping US and Japan.
Being the US's major auto industry for 100 years, GM had nowhere to go but down when the leading capitalist country was badly hit by crisis that analysts say is greater than the Great Depression in 1930s. When GM stumbled, Toyota came in, almost claiming even the US auto market.
Ryo Sahasi, a public-policy expert from the University of Tokyo said that Toyota was a symbol of recovery during Japan's long recession. Indeed, Toyota is the perfect symbol of the slow rise and rapid fall of the Japanese economy.
Toyota was founded in the 1930s and went through a slow-paced global expansion. It inched its way to grabbing its share of the US market pie in the 1990s when it focused on the production of fuel-saving models and high quality vehicles. Finally, it was able to take over GM's leading position but it was but a short lived celebration.
It is suffering the worst with the advent of safety problems due to the global economic crisis. According to auto analyst Zhong Shi, “the global financial crisis froze most of Toyota's capital planned for expansion, and forced it to slash investments and costs. Most of its models now have to use same parts. If one type of part has a problem, millions of vehicles will be affected.” And so the nightmare did happen.
The specific problem on recalls lies on a very integrated automotive supply chain. Automakers, in this instance the Japanese, rely on original equipment manufacturers (OEMs) so problems at one company extend to other companies having the same OEMs. Because of the current economic climate, suppliers are financially-stressed to invest in new technologies.
A few days after Toyota announced the recalls, Honda announced its own. The recall affected about 646,000 vehicles and was due to a problem with the car window.
Nissan, Japan's third biggest carmaker, is also recalling about 540,000 vehicles due to faulty pedal and inaccurate fuel gauges. Of the figure, more than 400,000 vehicles are in the US. Models involved in the recalls include Infiniti Qx56, Xterra, Pathfinder and Armada SUVs, Titan and Frontier pickup trucks and Quest minivans.
The US for its part, tried to bail out GM last year, but only to delay an inevitable crash as analysts forecast. GM filed bancruptcy on May 31, 2009 in which the US government was quick to pump in the American people's money of more than 50 billion dollars. As the US government owns 60% of GM, it expects to attract the private sector to put in money after the bailout and resuscitate a leaner GM. But critics are adamant the private sector will do it given the status of the US economy and the shrinking demand.
Crisis of overproduction
Towards the last quarter of 20th century, the global auto industry has been increasing production because of globalization. In the hope of finding new markets, the production of vehicles quadrupled overtime.
Automobile companies entered into joint ventures . This pumped up multimillion dollars and provided access to advanced technologies. For example, GM tied up with Shanghai Automotive Industry Corporation (SAIC), a state-owned Chinese manufacturer in 1997. In 1999, it put up money in Japanese companies like Isuzu and Suzuki.
With the concentration and centralisation of capital, more investments on technological innovations were possible such as internet, telematics (using information technology inside the vehicle) driving further the automobile industry. In a bid to feed the culture of consumerism, new equipment that use enhanced mode of personal communication, navigation, and safety sensors were maximized.
In 2005, the mergers and acquisitions among automakers worldwide dried up in the middle of 2005 because of the tightening global financial crisis that was about to explode in a couple of years.
The next thing that happened—the financial crisis has hit the bottom. Carmakers closed down some production units and thousands of workers were laid off worldwide. A shrinking global demand just intensified an already cut-throat division of markets among major economies.
The productive capacity of the car industry is far beyond an expansion in what the market can bear. As the economic and financial crisis is expected to last for long, the global auto industry will remain distressed just as long.
Photo: Toyota Origami c/o Flickr.com. Some rights reserved
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